Category Archives: Commercial

The State of Commercial Lending: A Conversation with GRP Capital Management Team

It’s a New Year and time to think about new beginnings, new ventures and new business plans. 

We thought it would be a good time to check in with our GRP Capital Management, President Rick Patel and Managing Director Krishan Patel. Let’s find out what their take is on the economy and the state of commercial lending. Check in with us if you have follow-up questions. We would love to hear your business plans and our team of experts is ready to consult with you.

Here is our conversation:

Q: What are the best ways to deal with rising interest rates while seeking financing? 

Krishan: Although borrowers may not have direct control over interest rates, they can work in their favor by reducing the leverage of their transactions. With a potential recession on the horizon, banks will be under close scrutiny by regulators, leading them to prioritize making safer loans. As a result, lenders may be more willing to offer reduced rates to borrowers who are willing to take on more risk or offer a banking relationship. Banks are interested in offering incentives to borrowers to choose their institution. 

Q: What measures should business owners be taking during these times of higher interest rates? 

Rick: I tell all our clients to be strong managers. Focus on controlling expenses as much as possible. You may want to reach out to your lender. Keep them informed if you have any hardship with your interest rate. It might be the time to discuss modifying your rate if it’s workable.

Krishan: Clients also need to be watching carefully how rising interest rates are affecting their bottom lines. Interest rate increases can have a ripple effect throughout the supply chain, as companies may need to raise their prices in response. As an end seller or service provider, it is important to consider these changes. Adjust prices strategically to maintain your margins and remain competitive in the market. It is also essential to move levers with conviction, rather than reacting to changes haphazardly or without a clear plan.

Commercial Lending Options

Q: Are there any loans out there right now that can actually come down in rate or allow for earlier refinancing? 

Krishan: Conventional loans offer more flexibility in terms of interest rates and prepayment options, but they can be more difficult to qualify for. On the other hand, government-guaranteed loans may have less flexibility in terms of prepayment options, but they may be easier to access for some borrowers.

Rick: The borrower’s financial picture is really critical. A strong borrower has the leverage to find financing options through other sources, for example credit unions, community banks, CMBS and other avenues. Our team specializes in finding the best rates, which are often not the local lenders. 

Krishan: When clients come to us looking for financing, we talk to various potential lenders and try to work out the best structure. Ideally, we want to tick off the most boxes for our clients. 

Q: What types of loans are lenders interested in making now? 

Krishan: Florida, Texas, and other southeastern states have attracted lenders’ attention due to their strong economies. In addition, diversification in asset type may also be a key lender strategy in 2023 in order to remain competitive, spread risk and ensure a stable portfolio.

Rick: The truth is that lenders are looking at strong business models and strong borrowers. But that doesn’t mean that there isn’t money for people with a few dings on their credit report or those who have had some ups and down in business in the past. But in general, lenders are a little on the cautious side right now. 

Q: What do borrowers who are interested in SBA loans need to know? 

Rick: I know some borrowers want to avoid the SBA, but they shouldn’t! 

Krishan: Yes, we definitely have clients who found the SBA application process to be too tedious.

Rick: But the truth is that SBA financing may still be the perfect fit for meeting their leverage requirements (equity contribution). We find that our GRP Capital expertise takes the bulk of the burden of the application off the clients, which makes the SBA loan underwriting faster and easier for everybody.  

Krishan: Ultimately, borrowers should not see SBA loans as a burden. Rather it is an opportunity for borrowers to access the financing they need.

Rick: Borrowers should know that 7a loans have historically had variable rates. However, some of our lenders are now providing fixed rate options. We know that interest rates can also come down in the future. So we have to work with our clients to determine the right time to lock in a rate or whether a variable rate is in fact the best product. 

Q: What are the most important reasons to refinance even during these times? 

Rick: Numerous reasons. Moving from 7a loans to a fixed rate option is a great example. 

Krishan: Refinancing with non-predatory lenders or establishing new banking relationships can open up opportunities in the future.

Rick: Refinancing should always make your cash position better or allow for improvements on the property. 

Q: What’s happening with construction loans? 

Rick: It’s complicated!

Krishan: Although construction lending has slowed, lenders are carefully evaluating the ability of general contractors to complete projects in the face of supply chain disruptions, labor shortages, and rising costs due to inflation. 

Rick: If you are considering construction, you need really strong professionals advising you on all aspects of the project. You especially need professionals in budgeting and zoning. Not every lender is interested in construction projects. However we are able to place these loans with good evidence of future profitability.

New Issues and Products

Q: Are there any special programs for any specific loan sectors? 

Krishan: One area we’d especially like to break into is the USDA Food Supply Chain Guarantee. These loan products are newer to GRP but are designed to strengthen America’s food supply chain. They offer many benefits that other businesses sectors can’t capture. The program supports any businesses involved in aggregating, processing, manufacturing, storing, transporting, or distributing food. 

Q: Anything changing in the appraisal process? 

Rick: In the current economic climate, it is likely that appraisers will be more cautious in their underwriting process in order to mitigate risk. They will assume higher supply costs and higher payroll costs, just to name two categories.

Krishan: Appraisers are also considering the possibility of sustained current interest rates. And they are constantly watching the potential for inflation to erode earnings and affect discretionary spending. 

Rick: We try to have these conversations with our clients before and during the appraisal process. Borrowers need to be aware of these potential challenges. They have to clearly understand the value of the property being financed, without emotion or excitement about potential financing. 

As you can see, the current loan climate is changing all of the time. We at GRP Capital are in contact with our large network of lenders to stay on top of all of the ups and downs, new and old ways to structure loans and finding the best matches for our clients.

Refinance for cash out

Cash Out with a Refinance

Our client needed to pull cash out to upgrade their hospitality property but could not refinance due to the structure of their debt.

The amount they needed for their cash out was smaller than our typical loans. However, this was a repeat client who had approached us, seeking our counsel. Our management team looked carefully at all of their businesses and discovered a possibility. They owned an office building which was eligible for refinancing. There was even sufficient equity to pull out cash during the refinance.

Our client was pleased to close the loan and begin their upgrade.

GRP Capital is celebrating its tenth anniversary in 2024. This longevity has allowed to us to deepen our list of repeat customers. This benefits everybody.

Repeat Client Benefits:

• We know you! Our repeat clients are already “in the system”. We have their pertinent information, we understand the structures of their businesses, we even know who their team of professionals are. The “getting to know you” phase is already taken care of. We know what aspects of this process are easiest for you and your team and which present challenges at times. We are prepared for potential bumps in the road. Particularly with refinances and those with cash out components, this is critical.

• You Know Us!  Repeat clients know the “GRP Capital way”. You know how we match you with a lender, how we internally underwrite your file and how we process loans. There are no surprises as you already know how we communicate and the roles we have from business associates to credit analysis, from management to loan processing.

• We know your people:  If we have closed loans for you in the past, we may already have dealt with your attorney or your accountant. We already have emails for your insurance agent, your title agent and your franchise representative. Knowing how all of these professionals handle their business allows for seamless operations.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

Cash out for refinance

1031 Exchange for New Florida Hotel Owner

Our Florida client came to us with a 1031 exchange.

The client was getting ready to sell a Georgia property. They were using the proceeds to purchase a new hotel in central Florida. To minimize their tax exposure, they were utilizing a 1031 exchange.

A 1031 exchange, also known as a like-kind exchange, is a real estate investing tool. It allows investors to swap out one investment property for another, deferring certain capital gains taxes. 

Our entire team worked closely with our client, always mindful of the 1031 exchange deadline.  He is now the proud owner of his hotel. He is very skilled at increasing profitability and is ready to take on the challenges of his new property. Our client was appreciative of the availability of the entire GRP Capital team, even exclaiming, “You always are there for me. I appreciate what you are doing.”

Tips for Handling a 1031 Exchange Deadline:

• Secure specialized help. Be sure your attorney has experience with 1031 purchases and sales. In addition, be careful when choosing a title company for the sale of your property. Be sure they have the ability to hold the proceeds in escrow as you wait for the purchase to go through.

• Know your deadline. Many business owners have their eye on purchasing a new property. Sometimes, they plan to sell another asset for their equity injection. That is a great plan. However, make sure the loan is feasible, and that a lender can close the loan to meet your 1031 exchange deadline. The SBA (Small Business Administration) is still a great resource for hotel loans, but be aware that SBA loans take a bit longer to close, especially 504 loans.

• Get all of your own financial documents ready:  Lenders will require taxes to be filed (or extensions), as well as financials that are less than 90 days old. Work with your accountant and other professionals and let them know your 1031 exchange deadline.

• Make it legal:  Work with your attorney so that your borrowing entity has an operating agreement or bylaws, is registered in the correct state and can be licensed correctly. 

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

Helen Georgia hiking trail mountains

New Georgia Hotel Loan

Senior Associate Ryan Dumas has helped his client close a Georgia hotel loan, using the SBA 7a program. The loan has fixed rates, which were very competitive in today’s marketplace.

Our Georgia hotel client was ready to take on a new business. To be sure, she has a great deal of experience in hospitality ownership and management. Therefore, this Georgia hotel loan was important to her and her family.

Ryan and our in-house underwriting and credit analysis team recommended an SBA 7a loan for a number of reasons. Firstly, the loan fit many of the 7a parameters. In addition, lenders are more willing to make hospitality loans when they come with an SBA guaranty.

Ryan was very pleased with the process. He stated, “We really are the leaders in the marketplace in closing SBA 7a loans. Our GRP team knows which lenders are interested in lending for hotels (not all banks are). This saves our clients a lot of time, not to mention money. I’m pleased to be part of the solution for these wonderful clients.” As for our client, she is busy working on improving the operations of her new hotel and said in an email, “Thank you for all your help obtaining the property. You were all great!”

Basic SBA 7a Information:

• What can a SBA 7a Loan used for? Limited to $5,000,000, borrowers can use this type of loan for purchases of businesses including equipment, renovation/construction and refinancing, too. Borrowers can even take out an SBA 7a loan for changes of ownership.

•How does an SBA 7a differ from an SBA 504? In order to apply for an SBA 504 loan, borrowers must work with both a CDC (Community Development Corporation) and a senior lender. The CDC has to officially submit the loan to the SBA for approval. In addition, the CDC also approves the lender. Typically the CDC and the lender each have their own underwriting processes, which happen simultaneously. These extra steps typically lead to a lengthier closing. GRP Capital advises 504 loans when borrowers have sufficient time in their purchase sale agreement and for larger loans, too.

• Why do lenders like SBA loans? It’s all about risk! Lenders are by nature risk-averse. The SBA guarantees the majority of the SBA loan, which removes a great deal of the risk from the lender. So it’s a win-win for them. They get to have a loan on their books without the full amount of the risk they incur with conventional loans. GRP Capital is continuing to dialogue with our network of lenders. We think it’s important that lenders understand the many stable, profitable hospitality businesses that are out there.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

Working together on SBA 504 loans

SBA 504 Loans for Hospitality

Once again, Ryan Dumas has helped a client close a hotel loan, this one in an East Coast resort location.

Ryan’s client, an experienced hotel owner, was prepared to purchase a hotel. This property was not too far from a current one he already owns. Our client knows this community well and had been keeping his eye on this hotel. He believed that the hotel had the potential to be even more profitable with strategic, experienced management, which he had the time and skills to provide.

Our in-house underwriting and credit analysis team recommended an SBA 504 loan to our client. Many lenders are still skittish about hospitality loans. However, the guaranty of one of the SBA 504 loans is enticing to a greater number of lenders. Working with a certified development company as well as a senior lender, our team was able to shepherd the loan through this complex process.

Our client has taken possession of his new hotel. His strong business skills should allow him to capture even more of this resort market. He remarked, “I know you worked very hard to process my loan.” During the loan processing, we spoke to him every day. So we are going to miss him while he’s busy with his new business!

FAQs on SBA 504 Loans:

• What can an SBA 504 Loan be used for? Purchase of a business or equipment as well as renovation/construction for an existing business. At this time, SBA 504 loans cannot be used for refinancing.

• What is a Certified Development Company (CDC)? In order to apply for an SBA 504 loan, borrowers must work with both a CDC and a senior lender. The CDC has to officially submit the loan to the SBA for approval. In addition, the CDC also approves the lender. Typically the CDC and the lender each have their own underwriting processes, which happen simultaneously.

• How Complicated are SBA 504 loans? To be honest, there are a lot of moving parts. Essentially, you are applying simultaneously for two loans and closing them at the same time. Having GRP Capital to assist in the large numbers of document collections saves clients a huge amount of time and hassle. In addition, GRP Capital already has positive working relationships with many CDC’s and knows which lenders are willing to make hospitality loans.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

We Did It! Fast Closing for two Midwest loans

Ryan Dumas‘ clients came to him with a challenge and a problem. How quickly could GRP Capital close not one, but two hotel loans?

It was a challenge, but our team, working together, was up to the task. In fact, we closed both loans in under 40 days. This was one of our fastest hospitality loan closings, and a source of great pride!

Our clients, experienced hotel owners, now own two new hotels. They were pleased with the results and the team approach to the various issues that come up during a closing. During one conversation, the client said, “My attorney was impressed with you. You really got quick results.”

Quick closings are not always possible. But sometimes they are absolutely required.

Reasons for a Fast Closing:

• Issues facing the seller: A property might come on the market due to a seller issue. They may have another business they want to fund with the proceeds. Sometimes, sellers just simply are ready to retire. While not every reason is truly a “crisis” requiring a quick closing, we try to expedite the process.

• Competitive Bidding. Borrowers will sometimes feel tremendous pressure to close when sellers indicate there are other buyers out there. We try to caution everybody that super fast closings are not always possible (and are becoming rarer in both hospitality and construction loans). In addition, a loan in progress will almost always close more quickly than starting over with another buyer.

• Using proceeds from a 1031: Borrowers who are planning to use the proceeds from a previous commercial real state sale save taxes by quickly using the profits on a new purchase. This transaction, called a 1031 exchange, has a time limit between the sale and the new purchase. This can legitimately necessitate a quick closing.

What Can you do to Expedite Closings?

• Have your books in order: Borrowers need to have up-to-date personal financial statements. Their taxes must be filed or on extension. And the borrowers must have their hands on good, solid information about the business they are buying. Lenders must be assured, especially for a fast closing, that borrowers can make loan payments.

• Put your CPA on speed dial. As a borrower, you will need multiple documents including up to date financials. If your CPA regularly submits monthly reports to you about other businesses you own, that’s awesome. If not, let your accountant know that you are in the loan process and may need accurate documents quickly. You may have to pay for this short-term additional work. We recommend doing so.

• Work with an attorney: Fast closings are almost impossible without good counsel. Contact your real estate attorney and include them in decisions and document creation. Use their advice as you create borrowing entities and attendant operating agreements. DIY is not great for fast closings. Solid legal advice is needed.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

New Construction Loan for Liquor Store

Construction loans require special attention. They are somewhat complex and carry a modicum of risk. For these reasons, there is a smaller pool of lenders who make construction loans.

Our Georgia clients were experienced liquor store owners and operators. They had found a site in Georgia that looked promising for a new liquor store. After some delays securing local permitting, they were ready to secure financing.

Rick Patel worked closely with the clients. His advice was integral to securing general contractor approval. In addition, like most construction loans, this one also required multiple budget revisions. An accurate budget is critical, so the loan amount is sufficient for the entire construction process.

Important Aspects of Construction Loans:

• Clear, realistic business plan: Borrowers must assure lenders that they have a realistic business plan. That means they must have a strategy not only to build, but also to operate and manage a brand new business. Before even searching for a lender, spend the time to develop a coherent plan. Your plan should include a marketing analysis of the area, descriptions of competitors and why you think you can be successful. Sometimes GRP Capital will recommend that borrowers utilize a business consultant, who can produce a report that speaks the “lender language”.

• Finding an appropriate general contractor. Banks will want to vet your general contractor, just like they underwrite you as a borrower. To do this, they will want to ascertain that the GC has relevant experience and strong finances. Typically lenders will interview and request documents from the GC directly, which GRP Capital helps to facilitate.

• Careful underwriting: Lenders want to make sure borrowers have the capacity to repay the loan. In addition, an appraiser determines both the value of the land or building prior to construction (as is) and when the project is completed. The underwriting and appraisal process will often find aspects of the budget that have to be revised. As a result, construction loans often take a bit long longer to close.

• Permission to Build: Depending on your locality, there can be some bureaucracy. Obtaining permits to build as well as permission to operate the business often requires approval at the city or county level. Understand the permitting process, including the timeline.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

Texas Buyers Needed Bridge Loan

Our clients had their eyes on an upper moderate hotel in South Texas. They had chosen their lender.

But this story almost didn’t have a happy ending. Their lender dropped the loan in the middle of underwriting!

Lender dropout is a real problem and it is becoming more common in the current economic climate. And even more upsetting, the seller was adamant about the timeline: no extensions!

The buyers came to us in a bit of a crisis. They needed a loan fast!

Rick Patel and Krishan Patel worked closely with the client partnership group. First GRP Capital recommended a restructuring of the loan. As a result, traditional lenders would be more willing to finance it. But, being realistic, they recommended a bridge loan. Bridge financing is a short term loan, designed to bridge the gap between undertaking financing and finding a permanent financing product. Bridge loans can be the perfect solution when the loan absolutely has to close, but the clients need more time to get everything right.

With a lot of work, this story had a happy ending. Our clients are the owners of a new hotel. They have short-term financing and are working with GRP Capital now to finalize their long-term financing needs.

Bridge Loan Basics:

• Short-term financing that has to stay short-term. Bridge lenders are interested in short-term financing only. They want to know that clients have an exit strategy to obtain permanent financing.

• Premium comes with a price. Bridge lending has a built in cost, usually a higher interest rate. This is another inducement to find permanent financing quickly.

• Be prepared for careful underwriting: Bridge loans are a somewhat riskier product for the lender, so lenders will work to protect themselves. They will conduct their own underwriting and it will be quite similar to a conventional lender’s underwriting protocol. Bridge lenders want to ensure that your loan will be able to be funded elsewhere pretty quickly. So they will look at your loan structure, your cash positions and your debt coverage before offering even this emergency financing.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

First Time Owner Buys Florida Hotel

Our client was ready to be a first time owner of a hotel.

He had already successfully owned and operated several fast casual restaurants. Now he was ready for the challenge and the potential opportunity of a Florida hotel.

Our client had been looking for properties in the west coast of Florida for a while. He knows that market well and it is close to where he lives. He was keeping his eye on several hotels that were rumored to be going on the market. When they became available, with our advice, he made a competitive bid which was accepted. Now, he just had to close by the seller’s timeframe.

A first time owner needs a little more attention. Rick Patel and Krishan Patel worked closely with the client, along with Keren Alpert, our loan processor. We advised him on setting up his corporation. We recommended that he bring in an experienced minor partner, at least at the beginning. We also were a resource in engaging legal counsel and insurance.

The partnership group coalesced and the loan closed. Our client told us, “Thank your team for all the help during the process”. His hotel is ready for the Florida high season.

Tips for First Time Owners:

• Stay within your budget. Just because you are ready to take on this new challenge, don’t feel pressured to spend more than you are able to. As exciting as new ownership is, affordable ownership is your goal.

• Engage your attorney and accountant. First time owners are wise to assemble a team of professionals in addition to utilizing your GRP team. Do not try to save money by serving as your own attorney or accountant. Accountants needs to be on board to provide monthly updated financial reports for any businesses you own. Lawyers can help you in negotiating with the seller (and their lawyer), as well as prepare and review documents and make any necessary changes to agreements.

• Start working on obtaining insurance right away! Obtaining insurance is not super fast for new properties, especially in certain coastal areas. Particularly if you require flood insurance, begin that process as soon as your PSA (purchase sale agreement) is signed. Sometimes you may also need life insurance either because you are a key employee, or because of a collateral shortfall. It can take weeks to obtain the life insurance policy and assignment, so begin that process right away as well.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

California Hardware Store Has New Owners

Our clients saw a hardware store for sale and were ready for a hardware store loan.

We were ready to make it work.

This was a brand new venture for our client partners. It was our job at GRP Capital to make the case for their past successes and their solid business plan.

An independent hardware store can be a competitive, challenging business. But in this smallish California town, the local hardware store was a gathering place for all things hardware and a variety of rentals. Our clients knew the area well as they already ran a successful independent hotel nearby.

Our clients worked closely with the sellers, retaining the management team and key employees. This will ensure continuity, something the lender looked at favorably. The lender was sufficiently confident in our clients’ business plans to offer an affordable loan. Ultimately, both the lender and the client were optimistic about the hardware store loan and the business’ chances for success.

Do You Want to Expand into New Business Ventures?

• Become a student in the new business. Just because you have been a customer of a business does not make you an expert. If you want to be a business owner, become an expert. Do your reading, talk with business owners, attend a local conference or even audit a class on the business at a local college.

• Managing What you Have and What You Are Starting : We If you already have a successful business in another arena, how will you maintain your current obligations? Part of your business plan needs to include maintaining your current businesses. Lenders will want to see continuity in revenue stream and solid post-closing liquidity.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.